Planned Layoffs Surge In July

August 3, 2011: For the past three months, American companies have been
cutting their workforce in increasing numbers, according to a new report
from Challenger, Gray & Christmas, an outplacement consultancy group
in Chicago. In July, the number of planned job cuts surged to a 16-month
high of 66,414 -- a 60 percent increase from June.

"We"re beginning to see patterns that are disconcerting, and the really
troubling part is this: Nothing is happening in the economy which is going
to boost job growth," said Christine L. Owens, executive director of the
National Employment Law Project.

With the exception of slight improvement last week, new weekly unemployment
claims have topped 400,000 a week for more than three months -- the level
generally considered the dividing line between an improving labor market
and a stagnant one. Likewise, the number of job openings dropped in June
and July, according a firm that tracks online job postings. Another telling
piece of the puzzle: The number of temporary workers -- whose fortunes are
closely watched as an indicator of employers" future hiring intentions -
dipped between May and June, according to the Bureau of Labor Statistics.

For the record, last week's dip below 400K initial claims was revised up.
It has been 17 consecutive week of +400K initial claims.

40,000 European Bank Positions Targeted

A running tally of planned job cuts by European banks reached around 40,000
Tuesday, little more than halfway though earnings season, as firms that failed
to control costs or were over-optimistic about growth make the deepest cuts.

Most of those cuts are in Europe but a slowdown in Europe means a slowdown
in US exports. Moreover, one can expect similar cuts in the US as soon as banks
are forced to mark assets to market.

HBSC, Credit Suisse, Goldman Sachs, Morgan Stanley Announce Cuts

August 1, 2011: HSBC, the big European bank, said Monday that it was cutting
30,000 jobs, as part of a wide-ranging cost-cutting program to improve profitability.

HSBC is the latest bank to announce job cuts amid regulatory uncertainty
and global economic weakness. Credit Suisse said last week that it planned
to eliminate 2,000 positions, or 4 percent of its jobs. Goldman Sachs and
Morgan Stanley are also reducing their head counts.

That 30,000 is part of the 40,000 reported above.

Merck To Cut Up To 13,000 Jobs

Merck & Co. (MRK) said Friday that it would widen its cost-cutting measures
by eliminating up to 13,000 jobs--on top of the 17,000 layoffs in prior actions--as
the drug maker responds to generic competition and other challenges by shifting
resources to emerging markets.

I would be very surprised to see this "contained" to Merck. Should Congress
do something rational, such as allow drug imports from Canada, there could
be a bloodbath in pharmaceuticals.

Mexicans Return Home

There are fewer undocumented immigrants in California - and the Sacramento
region - because many are now finding the American dream south of the border.

"It's now easier to buy homes on credit, find a job and access higher education
in Mexico," Sacramento's Mexican consul general, Carlos González Gutiérrez,
said Wednesday. "We have become a middle-class country."

Mexico's unemployment rate is now 4.9 percent, compared with 9.4 percent
joblessness in the United States.

An estimated 300,000 undocumented immigrants have left California since
2008, though the remaining 2.6 million still make up 7 percent of the population
and 9 percent of the labor force, according to the Public Policy Institute
of California.

Mexican citizens returning home is a good thing. That they are returning home
because of exceptionally poor economic conditions in the US is not.

One Million Robots to Replace Workers

Taiwanese technology giant Foxconn will replace some of its workers with
1 million robots in three years to cut rising labor expenses and improve
efficiency, said Terry Gou, founder and chairman of the company, late Friday.

The robots will be used to do simple and routine work such as spraying,
welding and assembling which are now mainly conducted by workers, said Gou
at a workers' dance party Friday night.

The company currently has 10,000 robots and the number will be increased
to 300,000 next year and 1 million in three years, according to Gou.

Foxconn, the world's largest maker of computer components which assembles
products for Apple, Sony and Nokia, is in the spotlight after a string of
suicides of workers at its massive Chinese plants, which some blamed on tough
working conditions.

The company currently employs 1.2 million people, with about 1 million of
them based on the Chinese mainland.

Manufacturing Jobs Vanish in "Creative Destruction"

People blame China for stealing jobs. While that is partially true, the bigger
picture is "creative destruction".

Many manufacturing jobs are simply vanishing period. They no longer exist.
Robots and technology do the work.

See chart 5 illustrating the conditions persisting during Japan's slow-motion,
deflationary, debt-deleveraging depression from the mid-to-late '90s when
the Japanese Boomer demographic drag and persistent price deflation took
hold. I strongly suspect that we will experience a similar pattern between
private and public debt/GDP.

We could see bank lending/GDP return to the 30% long-term average area
from today's peak of 50-51% (and bank real estate loans/GDP of 27% vs.
the long-term average 10-11%).

If so, we are likely to see little or no bank lending growth, which in
a debt-money economy means little or no GDP growth and further mass-consolidation
of capacity and debt defaults or gradual pay down.

Instead of "recovery" or "expansion", we should think in terms of a Schumpeterian
Depression phase of the Long Wave trough, characterized as a debt-deflationary,
deleveraging, demographics-induced no-growth regime.

Long-term 3.3% real GDP growth has decelerated to ~1.5%, and I expect
average growth from the '00 peak to the mid- to late '10s to decelerate
further to 1% or below.

The bottom line is that private debt-based growth is simply not possible,
whereas any "growth" we do experience will be as a result of incremental
government borrowing and spending, most of which will be in the form of
war spending, bailouts, and social service transfers at very low GDP multiplier.

Schumpeterian Depression

The economic concept of creative destruction was first introduced by the
Austrian School economist Joseph Schumpeter.

Theory and Examples

Companies that once revolutionized and dominated new industries - for example,
Xerox in copiers or Polaroid in instant photography - have seen their profits
fall and their dominance vanish as rivals launched improved designs or cut
manufacturing costs. Wal-Mart is a recent example of a company that has achieved
a strong position in many markets, through its use of new inventory-management,
marketing, and personnel-management techniques, using its resulting lower
prices to compete with older or smaller companies in the offering of retail
consumer products.

Just as older behemoths perceived to be juggernauts by their contemporaries
(e.g., Montgomery Ward, FedMart, Woolworths) were eventually undone by nimbler
and more innovative competitors, Wal-Mart faces the same threat. Just as
the cassette tape replaced the 8-track, only to be replaced in turn by the
compact disc, itself being undercut by MP3 players, the seemingly dominant
Wal-Mart may well find itself an antiquated company of the past. This is
the process of creative destruction.

Other examples are the way in which online free newspaper sites such as
The Huffington Post and the National Review Online are leading to creative
destruction of the traditional paper newspaper. The Christian Science Monitor
announced in January 2009 that it would no longer continue to publish a daily
paper edition, but would be available online daily and provide a weekly print
edition.

The Seattle Post-Intelligencer became online-only in March 2009. Traditional
French alumni networks, which typically charge their students to network
online or through paper directories, are in danger of creative destruction
from free social networking sites such as Linkedin and Viadeo.

In fact, successful innovation is normally a source of temporary market
power, eroding the profits and position of old firms, yet ultimately succumbing
to the pressure of new inventions commercialized by competing entrants. Creative
destruction is a powerful economic concept because it can explain many of
the dynamics of industrial change: the transition from a competitive to a
monopolistic market, and back again.

Creative destruction can hurt. Layoffs of workers with obsolete working
skills can be one price of new innovations valued by consumers. Though a
continually innovating economy generates new opportunities for workers to
participate in more creative and productive enterprises (provided they can
acquire the necessary skills), creative destruction can cause severe hardship
in the short term, and in the long term for those who cannot acquire the
skills and work experience.

I do not know what Friday's jobs number will bring, but at this point, assuming
it is good, it is more likely to be a last hurrah than anything else. My guess
is for jobs to be under 100,000 and for unemployment to "unexpectedly" rise
.2%.

Regardless, consumers have tossed in the towel, most of Europe is in an outright
recession right now, and the US is headed for a recession if not in one now.
Global stimulus has worn out. It always does.

No structural problems have been fixed by central bankers, they just bailed
out the banks and the bondholders at the expense of taxpayers, sending taxpayers
deeper into the hole.

There is no reason at all for businesses to want to expand in this environment,
so they won't. That's all you need to know.